XLF – Financial Select Sector SPDR – A put spread on the XLF, an exchange-traded fund designed to yield investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, indicates one options strategist is wary shares of the underlying fund could decline significantly ahead of July expiration. Shares of the financials ETF are currently down 0.25% to $14.64 just before 2:40 pm (ET). The pessimistic player enacted the spread by purchasing 10,000 puts at the July $14 strike for a premium of $0.56 apiece, and by selling the same number of puts at the lower July $12 strike for a premium of $0.18 each. Net premium paid for the transaction amounts to $0.38 per contract. The trade positions the investor to make money if shares of the XLF decline another 6.95% from the current price to breach the effective breakeven point on the spread at $13.62 through expiration. The investor walks away with maximum potential profits of $1.62 per contract if the fund’s shares plummet 18% to $12.00 or less ahead of expiration day next month.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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